TEXAS-NEW MEXICO POWER COMPANY

                              TERMS AND CONDITIONS
                       FOR PURCHASE OF CAPACITY AND ENERGY
                                      FROM
                            UNION CARBIDE CORPORATION

                                DECEMBER 30, 1994


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                                TABLE OF CONTENTS

         I.       RECITALS                                       04
         II.      DEFINITIONS                                    04
         III.     SALE AND PURCHASE OF ENERGY AND CAPACITY       09
         IV.      STATUTORY OR REGULATORY CHANGES                10
         V.       PRE-OPERATION PERIOD                           14
         VI.      EFFECTIVE DATE, TERM AND TERMINATION           18
         Vii.     DEFAULT                                        20
         Viii.    REPRESENTATIONS, WARRANTIES AND
                  AGREEMENT OF THE PARTIES                       20
         IX.      CONTROL AND OPERATION OF QUALIFYING
         X.       INTERCONNECTION AND SPECIAL FACILITIES         26
         XI.      METERING                                       29
         XII.     PAYMENT AND BILLING                            31
         XIII.    INSURANCE                                      33
         XIV.     LIABILITY, NONCOMPLIANCE AND GUARANTEES        34
         XV.      TAXES                                          36
         XVI.     CHOICE OF LAW                                  36
         XVII.    MISCELLANEOUS PROVISIONS                       37
         XVIII.   NOTICES                                        39
         XIX.     STANDBY POWER                                  39
         XX.      FORCE MAJEURE                                  41
         XXI.     ENTIRETY                                       43
         XXII.    AMENDMENTS                                     44
         XXIII.   COUNTERPARTS                                   44
         XXIV.    REMEDIES CUMULATIVE AND CONCURRENT             44
         XXV.     SIGNATURE CLAUSE                               45

                                   APPENDICES

  Appendix A        Interconnection Cost
                    ..........................................Study

  Appendix B        One Line Diagram

  Appendix C        Safety Requirements

  Appendix D        Operating Agreement



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                               PURCHASE AGREEMENT

Union Carbide  Corporation  ("UCC") and Texas-New  Mexico Power Company  ("TNP")
agree as follows:

I.   RECITAL 

     1.1  This Agreement  describes the terms,  conditions and prices applicable
          to  Energy  and  Capacity  sold and  delivered  by UCC to TNP from the
          Qualifying Facility,  as provided for by the PUCT, the FERC and PURPA.
          1.2 UCC desires to  construct,  own,  operate and control a generation
          facility that meets the qualifying facility  requirements  established
          by the FERC  rules (18 C.F.R.  292 et seq.)  implementing  PURPA,  and
          desires  to  generate  electric  energy and sell  energy and  capacity
          produced  by the  Facility to TNP.  1.3 TNP agrees to purchase  Energy
          delivered and Capacity made available from UCC's  Qualifying  Facility
          to TNP subject to the terms of this Agreement.

II.  DEFINITIONS

     2.1  "Agreement" - This document, including any appendices attached hereto,
          as may be amended from time to time.
        
     2.2  "Capacity Factor" - The ratio,  expressed as a percentage,  of the (i)
          total  amount of Energy up to Contract  Capacity  that UCC was able to
          deliver to TNP at the Point of  Delivery  during a  calendar  year and
          divided by (ii) the number of clock hours for such  period  multiplied
          by Contract Capacity.

     2.3  "Commercial  Operations" - The period of time  commencing on the first
          day following the date on which TNP received  written  notice from UCC
          that all start-up and testing operations are complete and the Facility
          is able to operate at or above Contract  Capacity and continuing until
          termination  of  this  Agreement,   provided  however,  if  Commercial
          Operations  commence  on a day other  than the first day of a calendar
          month, the compensation provisions and delivery requirements hereunder
          shall be adjusted by mutual agreement of the parties.

     2.4  "Contract  Capacity" or "Capacity" - The electrical capacity indicated
          in  Section  3.1 which  UCC shall  deliver  and TNP shall  receive  in
          accordance with the terms of this Agreement.

     2.5  "Emergency"  - A condition or situation  which in the sole judgment of
          either TNP, SWPP or ERCOT affects or will affect TNP's ability, or the
          ability of any member of ERCOT,  SWPP, or any other applicable groups,
          to maintain safe, adequate and continuous electric service.

     2.6  "Energy"  -  The  electrical  energy,   expressed  in  kilowatt-hours,
          indicated in Section 3.1 which UCC's Qualifying Facility shall deliver
          and TNP shall receive in accordance with the terms of this Agreement.

     2.7  "ERCOT" - The Electric  Reliability  Council of Texas,  including  any
          successor thereto and subdivision thereof.

     2.8  "FERC" - The Federal  Energy  Regulatory  commission  or any successor
          thereto.

     2.9  "Forced  outage" - Any outage  that fully or  partially  curtails  the
          electric  output of the  Facility,  other  than an outage  caused by a
          force   majeure  event  as  defined  in  Section  XX  or  a  Scheduled
          Maintenance.

     2.10 "Heat-Rate"  - The  number  of  BTU's  required  to  produce  one  (1)
          kilowatt-hour  of  Energy,  determined  in  accordance  with  standard
          practice in the utility industry.

     2.11 "Interconnection  Costs" - Reasonable costs of connection,  switching,
          metering, transmission,  distribution, safety provisions, engineering,
          administrative costs and taxes incurred by TNP as described in Exhibit
          A directly  related to the  installation  of the  physical  facilities
          necessary to permit  interconnected  operations with UCC's  Qualifying
          Facility,  to  the  extent  that  such  costs  are  in  excess  of the
          corresponding costs that TNP would have incurred if it had not engaged
          in interconnected operations with the Qualifying Facility, but instead
          generated  an  equivalent  amount of  capacity  and  energy  itself or
          purchased  an  equivalent  amount of  capacity  and energy  from other
          sources.

     2.12 "Interconnection  Facilities" All machinery,  equipment,  and fixtures
          required to be installed or retained in service solely to interconnect
          and  deliver  capacity  and Energy from UCC's  Qualifying  Facility to
          TNP's electrical  system,  including,  but not limited to, connection,
          transformation,   switching,   metering,  relaying,  line  and  safety
          equipment  and  shall  include  all  necessary  additions  to,  and/or
          reinforcements  of TNP'S  system as  described  in  Exhibit A attached
          hereto and incorporated herein by reference.

     2.13 "Internal Usage Energy",  or "Internal Usage Capacity" - the energy or
          capacity  that  UCC is  purchasing  from TNP  under  the  Power  Sales
          Agreement.

     2.14 "KW" or "kw" - One Kilowatt (1000 watts) of electricity.

     2.15 "KWH" or "kwh" - One kilowatt-hour of electricity.

     2.16 "MWH" or ""mwh" - One thousand kilowatt-hours of electricity.

     2.17 "Off-Peak Billing Month" - Any calendar month without On Peak Hours.

     2.18 "Off-Peak  Hours" - All  hours of the year not  designated  as On Peak
          Hours.

     2.19 "On Peak Billing Month" Any calendar month with On Peak Hours.

     2.20 "On Peak Hours - From 9 a.m. to 10 p.m.  -each Monday  through  Friday
          starting on May 15 and continuing  through October 15 each year. Labor
          Day and  Independence Day (July 4) shall not be considered on Peak. If
          July 4th  occurs  on Sunday  then the  following  Monday  shall not be
          considered On Peak.

     2.21 "Point of Delivery" or "POD" - The geographical and physical  location
          as shown on the attached  Appendix B at which the Qualifying  Facility
          and  the  Interconnection  Facilities  are  to be  located.  UCC  will
          furnish,  install,  own, and maintain the UCC-TNP tie lines  including
          conductors, dead-ends, hardware and connectors up to the TNP furnished
          ball and socket dead-end  insulators and the jaw end connector pads of
          TNP's line disconnect switches.  TNP will furnish,  install,  own, and
          maintain the arrester leads that connect to the TNP end of the UCC tie
          lines.

     2.22 "PUCT" - The  Public  Utility  Commission  of  Texas or any  successor
          thereto.

     2.23 "PURA" Public Utility Act as amended as of September 1, 1987.

     2.24 "PURPA" Public Utility Regulatory Policies Act of 1978, as amended.

     2.25 "Qualifying  Facility"  or  "Facility"  or  "Q.F."  UCC's  Texas  City
          cogeneration  facility  which  meets  the  criteria  for a  qualifying
          facility  as  presently  set  forth in  Subpart  B of  Paragraph  292,
          Subchapter k, Chapter 1, Title 18 of the Code of Federal Regulations.

     2.26 "Reserve  Margin" - The  difference  between (i) TNP's net  generating
          station  capability,  plus firm capability obtained from third parties
          by contract,  including, without limitation, firm power contracts with
          utilities, small power producers, other qualifying facilities, and the
          Qualifying Facility and (ii) TNP's net peak load requirement.

     2.27 "Power  Sales  Agreement"  - The  Agreement  dated  December  30, 1994
          whereby UCC agrees to purchase its electrical energy  requirements for
          its facilities located at or near Texas City, Texas from TNP.

     2.28 "Scheduled  Maintenance" - Periodical  period of time when curtailment
          of the  electric  output  of the  Facility  is  due to  inspection  or
          maintenance in accordance with an advance schedule.
              
     2.29 "Special  Facilities"  All equipment and  facilities  other than those
          defined as  Interconnection  Facilities which are furnished by TNP and
          are  necessary  to  economically,  reliably and safely  integrate  the
          Qualifying Facility into TNP's electrical system.

     2.30 Suspension - Suspension of the obligation of TNP to interconnect  with
          or make power deliveries for or on behalf of UCC.

     2.31 "SWPP" - The Southwest Power Pool, including any successor thereto and
          subdivision thereof.

     2.32 Termination  -  Termination  of  this  Agreement  and the  rights  and
          obligations of the parties under this  Agreement,  except as otherwise
          provided for in this Agreement.

III. SALE AND PURCHASE OF ENERGY AND CAPACITY

     3.1  UCC will  supply and sell and TNP will take and pay for (i) Energy and
          (ii)  Contract  Capacity  in  the  amount  of 60  MW,  subject  to the
          following: 1. UCC shall not be required to furnish Energy in excess of
          70 MW, except as otherwise  provided for herein;  and 2. TNP shall not
          be required to take or pay for Contract  Capacity or Energy it refuses
          to take pursuant to Section IX of this  Agreement,  and 3. Without the
          prior  authorization of TNP, UCC shall not supply,  nor be entitled to
          compen-sationfor  deliveries  of  Energy at an  instantaneous  rate in
          excess of 70 MW. 4. UCC will  endeavor to  maintain a Capacity  Factor
          greater than or equal to 90%. If the  Capacity  Factor falls below 85%
          UCC and TNP will  renegotiate in good faith the  Agreement.  5. Either
          party has the right to change the  Contract  Capacity if both  parties
          agree to the change. This will be negotiated in good faith between the
          Parties.

     3.2. UCC shall at any time,  upon TNP's  request,  increase  deliveries  of
          Energy up to a maximum  rate of delivery  equal to 70 MW except to the
          extent that output of the  Facility is  unavailable  because of Forced
          Outage  or  Schedule  Maintenance  or that UCC  would be  required  to
          operate in an inefficient manner.

     3.3  UCC's  supply  will be three (3)  phase,  four,  (4) wire  alternating
          current at  approximately  60 hertz and  approximately  138,000  volts
          unless TNP specifically approves otherwise, in writing.

IV.  STATUTORY OR REGULATORY CHANGES

     4.1  If during the term hereof statutory or regulatory  requirements change
          (including,   without  limitation,   legislative,   administrative  or
          judicial  changes,   interpretations  or  reinterpretations,   whether
          involving TNP's  participation or not) in such a way as to prevent TNP
          from accepting and paying for electric energy tendered from qualifying
          facilities,  then TNP shall have the  right,  upon  ninety  (90) days'
          written notice and good faith negotiations, to reduce, limit or modify
          its  purchases  and takes of Energy  delivered  hereunder to the, same
          extent   required  by  such   change  in   statutory   or   regulatory
          requirements.  In such event, UCC shall have no further  obligation to
          supply  or sell to TNP any  energy  at a rate in  excess  of  Contract
          Capacity  to the same  extent  as TNP  shall  have  reduced,  limited,
          modified or eliminated  its purchase and take  obligations  hereunder,
          and UCC may at its  option-,i  supply or sell all- or any part of such
          energy  to any  lawful  purchaser  to the  full  extent  permitted  by
          applicable  law, or may upon thirty  (30) days  written  notice to TNP
          terminate this Agreement without further obligations or liability.

     4.2  Nothing in this  Agreement  shall limit UCC or TNP's right to petition
          in good faith FERC,  PUCT,  or other agency of competent  jurisdiction
          for such rules,  orders or other  relief as such agency may issue with
          respect  to  TNP's  right  to  reduce  or  otherwise  dispatch  Energy
          deliveries  hereunder,  and any required  changes  lawfully ordered by
          such  agency  shall apply to this  Agreement.  Prior to  initiating  a
          petition under this Section, the petitioner shall give the other party
          advance  written  notice of its  intent,  and shall  provide the other
          party a copy of its filing when made with the  appropriate  regulatory
          authority.

     4.3  This Agreement has been entered into in accordance with relevant rules
          of the PUCT  currently in force;  however,  if any  federal,  state or
          municipal  government  or  regulatory  authority,   including  without
          limitation  the PUCT,  should for any reason enter an order  modifying
          its rule or TNP's tariff,  or take any action  whatsoever,  having the
          effect of  disallowing  TNP recovery in its rates,  fuel cost recovery
          factor,  purchased power cost recovery factor, or otherwise, of all or
          any  portion of the cost of  purchases  hereunder  (except  where such
          disallowance  is due to TNP's  failure to seek recovery or comply with
          procedural  requirements governing recovery of such costs) TNP may, at
          its option,  suspend any affected portion(s) of the payment obligation
          hereunder pending approval of a superseding  order,  modified rules or
          tariff for TNP, or other action that would permit  timely  recovery of
          such  costs.   During  such  suspension,   UCC  may  make  any  lawful
          disposition it elects of the Energy and Capacity for which payment has
          been suspended to the full extent permitted by applicable law, and TNP
          will  transmit,  at UCC's  request,  such Energy and  Capacity to such
          other lawful  purchaser  under  reasonable  terms and conditions to be
          agreed upon by the parties in accordance with any applicable rules and
          regulations;  except that TNP shall not be  required to transmit  such
          Energy and Capacity, if in TNP's good faith judgment,  UCC's equipment
          and facilities  are not sufficient to protect TNP's system,  employees
          or customers from damage or injury  arising out of such  transmission.
          TNP and UCC obligate themselves to all good faith efforts necessary to
          expedite the  establishment,  if possible,  of such superseding order,
          approval of modified rules or tariffs,  or other action so as to allow
          the earliest  possible  resumption of full  payment,  or failing that,
          adjusted  payments  hereunder should any such government or regulatory
          action denying recovery hereunder become final and unappealable:

          1.   UCC  shall  indemnify  (TNP)  including   interest  at  the  rate
               announced  from time to time by Texas  Commerce  Bank N.A. at its
               prime rate to the extent of any prior  payments for Energy and/or
               Capacity  made to UCC for  energy  in  excess  of UCC's  Internal
               Usage,  the recovery of which is prevented by such  government or
               regulatory action; and

          2.   TNP may, at its option,  upon at least  fourteen  (14) days prior
               written  notice to UCC, and within thirty (30) days following the
               date on which such  government  or  regulatory  action  hereunder
               becomes  final and  unappealable,  (i)  reduce  UCC's  deliveries
               hereunder to a level that will allow TNP complete recovery of the
               cost thereof,  or (ii)  terminate  this  Agreement in whole or in
               part.  TNP's  option to  terminate  does not  relieve  UCC of the
               responsibility  to repay TNP  pursuant to paragraph  

          4.3.1. This section 4.3 shall survive  termination  of this  Agreement
               for a  period  of  two  (2)  years  after  the  effective  day of
               termination.

     4.4  TNP and  UCC  recognize  that  TNP's  decision  to  purchase  Contract
          Capacity  hereunder is based on and limited by TNP's  electric  system
          capacity  requirements and capacity expansion plan(s),  as approved by
          the PUCT pursuant to PUCT  Substantive Rule 23.66 and as may from time
          to time be reviewed by the PUCT in any proceeding.  If the PUCT should
          determine  in any  proceeding  that T Is  available  capacity  sources
          exceed its  capacity  requirements,  and on that basis by final  order
          reduces TNP's recoverable cost of service (which includes the recovery
          of capacity  purchases  hereunder),  then TNP may reduce the  Contract
          Capacity  hereunder  to the extent such excess  Capacity  results from
          purchases  made  hereunder  by an amount  sufficient  to enable TNP to
          achieve  a  Reserve  Margin  which  the  PUCT  has  determined  to  be
          reasonable and prudent.

     4.5  TNP and UCC recognize that TNP's decision to purchase energy hereunder
          is  based  on,  and  limited  by,   TNP's   electric   system   energy
          requirements.  If the PUCT  determines  in any  proceeding  that TNP's
          available  energy sources exceed its energy  requirements  and on that
          basis, by final order, reduces TNP's recoverable cost of service, then
          TNP may reduce the Energy  purchased  hereunder  so that TNP's  energy
          purchases do not exceed its energy requirements.

     4.6  In the  event  that,  under  section  4.4 or  4.5 of  this  Agreement,
          reductions to the Contract Capacity or Energy  requirements  hereunder
          are made,  then in such event or events UCC may upon  thirty (30) days
          prior written notice to TNP, and within thirty (30) days following the
          date on which  such  regulatory  action  hereunder  becomes  final and
          unappealable  terminate this Agreement  without further  obligation or
          liability,  or  renegotiate  this  Agreement  with TNP to address such
          event(s).

V.   PRE-OPERATION PERIOD

     5.1  UCC  shall  make   available  to  TNP  site(s)  to  be  used  for  the
          Interconnection  Facilities and Special  Facilities.  The site(s) with
          easements  shall be made  available  to TNP within three (3) months of
          signing this Agreement.

     5.2  UCC shall,  at its sole  expense,  acquire and  maintain in effect all
          permits  and   approvals,   and   complete  or  have   completed   all
          environmental impact studies necessary for the construction, operation
          and  maintenance of the Qualifying  Facility.  UCC agrees to cooperate
          with  TNP  in  the   applications  for  permits  required  by  TNP  as
          contemplated herein.

     5.3  UCC  agrees  to  grant,  at no  expense  to  TNP,  all  easements  and
          rights-of-way  necessary  for  TNP  to  install,  operate,   maintain,
          replace,  and remove TNP's  metering and  Interconnection  Facilities,
          including,  but not limited to, adequate and continuous  access rights
          to property owned or leased by UCC. TNP is limited to accessing  UCC's
          property for purposes of construction,  inspections,  improvements and
          repairs.  TNP agrees to abide by UCC's Health Safety and Environmental
          requirements while on UCC's plant site.

     5.4  UCC agrees to execute and deliver to TNP all  documents TNP shall deem
          necessary  to enable  TNP to obtain  and  record  such  easements  and
          rights-of-way.

     5.5  It is the  responsibility of UCC to obtain all easements and access to
          land  used for  Interconnection  Facilities.  TNP is  responsible  for
          obtaining all transmission line easements and rights-of-way.

     5.6  UCC hereby grants to TNP all  necessary  licenses,  rights-of-way  and
          easements, including adequate and continuing access rights on property
          of UCC to  install,  operate,  maintain,  replace  and/or  remove  the
          Special Facilities.  UCC agrees to execute such other grants, deeds or
          documents as TNP may require to enable it to record such rights-of-way
          and  easements,  in a form  reasonably  satisfactory  to TNP,  for the
          construction,  operation, maintenance, replacement or removal of TNP's
          equipment  upon such  property.  TNP shall  endeavor to acquire  other
          necessary  licenses,  rights-of-way  and  easements  for  the  Special
          Facilities on reasonable terms in accordance with its usual practices.

     5.7  UCC shall  submit for TNP's  review  its  construction,  start-up  and
          testing  schedule for the Facility  within  thirty (30)  calendar days
          after execution of this Agreement or thirty (30) days after completion
          by TNP of an  interconnection  study,  whichever  is later.  UCC shall
          thereafter  submit  periodic  progress  reports  in a form  reasonably
          satisfactory to TNP and notify TNP of any changes to such schedules in
          a timely manner. TNP shall have the right to monitor the construction,
          start-up  and testing of the  Facility  and UCC shall  comply with all
          reasonable requests of TNP resulting therefrom.

     5.8  TNP shall  perform an  interconnection  study at TNP's  cost  within a
          reasonable  period of time after receipt of written  application  from
          UCC and under  reasonable  terms  and  conditions  agreed  upon by the
          parties.  The  interconnection   study  shall  determine  the  Special
          Facilities  and  Interconnection  Facilities  and the estimated  costs
          associated   therewith.   The  parties   shall  enter  into   mutually
          satisfactory  terms under which TNP shall construct Special Facilities
          in  a  timely  manner,  subject,   however,  to  events  beyond  TNP's
          reasonable control,  including,  without limitation,  time constraints
          incident  to  events of force  majeure,  in order  that  such  Special
          Facilities  will be  available  as of the date  identified  by UCC for
          start of  deliveries  hereunder or as soon  thereafter as such Special
          Facilities  can  reasonably  be  constructed  and readied for safe and
          reliable  operation  to  receive  the Energy  and  Capacity  UCC is to
          deliver hereunder. TNP shall submit for UCC's review its construction,
          start-up and testing schedule for the  Interconnection  Facilities and
          Special Facilities within thirty (30) calendar days after execution of
          this  Agreement  or thirty  (30) days  after  completion  by TNP of an
          interconnection study, whichever is later. TNP shall thereafter submit
          periodic progress reports to UCC.

     5.9  UCC shall notify TNP in writing prior to (i) the initial energizing at
          the Point of Delivery,  (ii) the initial parallel operation with TNP's
          system,  and (iii) the initial testing of UCC's Facility . TNP and UCC
          shall agree on the dates and times of the foregoing and TNP shall have
          the right to have a representative present at such time.

     5.10 UCC may conduct such tests of the Facility from time to time, prior to
          Commercial Operations,  as UCC in its discretion may deem appropriate.
          Subject to the  limitations  expressed in Section 5.10, if UCC desires
          TNP to take energy generated by the Facility during any proposed test,
          UCC shall notify TNP in writing within a reasonable time not less than
          three (3) days prior to such test.  Such notice  shall,  at a minimum,
          include a description  of the test,  approximate  time and duration of
          the test and approximate  amount of energy intended to be delivered to
          TNP as a result of such test. For energy delivered during start-up and
          testing,  TNP shall  pay UCC at the rate,  expressed  in  dollars  per
          kilowatt-hour,  as  calculated  based upon TNP's  decremental  cost of
          energy  purchased,  that  is  avoided  by TNP  due  to the  Qualifying
          Facility's delivery.

     5.11 UCC shall determine when the Facility is ready to commence  Commercial
          Operations;  provided however,  TNP shall not be required to accept or
          pay for capacity and energy deliveries, including, without limitation,
          capacity  and energy  deliveries  during  startup and testing of UCC's
          generating   unit(s),   if  in   TNP's   good   faith   judgment   the
          Interconnection   Facilities   and/or   Special   Facilities  are  not
          sufficiently  completed to accept or meter such  deliveries or protect
          the public,  TNP's  employees,  customers,  or electrical  system from
          damage or injury arising out of or in connection with the operation of
          uccls  generating  unit(s).  TNP's agreement to accept capacity and/or
          energy shall not be construed as  confirming  or endorsing the design,
          construction,  or operation of UCC's facility, or as a warranty of its
          safety,  durability, or reliability.  In the event TNP determines that
          the  Interconnection  Facilities are not sufficient to accept or meter
          capacity  and energy  deliveries,  TNP shall  give UCC prompt  written
          notice of such fact. After such notification,  TNP shall promptly take
          any  actions  it  deems  necessary  to  remedy  any  problem  with the
          Interconnection Facilities which TNP installed or maintains.

     5.12 UCC shall  provide  TNP seven (7) days prior  written  notice that the
          Facility  is ready to commence  Commercial  operations.  The  delivery
          requirements  and the  compensation  provisions  hereunder  shall take
          effect on the first day of Commercial operation; provided, however, if
          commercial  operations commence on a day other than the first day of a
          calendar month, the compensation  provisions and delivery requirements
          hereunder  shall be adjusted by mutual  agreement of the  parties,  to
          account for the partial month of delivery.

VI.  EFFECTIVE DATE, TERM AND TERMINATION

     6.1  This  Agreement  is  effective  as of  December  30,  1994,  and shall
          continue  in effect  for an  initial  term of ten (10)  years from the
          commencement of Commercial Operations.

     6.2  TNP  reserves  the  right  to  i  terminate  this  agreement,  without
          prejudice  to any other  power,  right or  remedy it may have,  if UCC
          should:

          1.   Fail to  deliver  any  Energy  for 12  consecutive  months  after
               Commercial  Operations  have begun  provided that such failure to
               deliver is not due to an act of or omission of TNP; or,

          2.   Fail to commence construction of the Facility PAGE 19 by March 1,
               1995,  abandon  construction  of the  Facility  at any time after
               construction commences, or fail to commence Commercial Operations
               by May 15, 1996.

          3.   Fail to maintain a Capacity Factor of 85% as addressed in Section
               III,  provided that such failure is not due to an act or omission
               of TNP, except when TNP has arranged and provided  standby power,
               or TNP  could  make  up the  capacity  loss  from  its  available
               resources;  or, TNP and UCC  negotiate a new  Capacity  Factor as
               addressed in Section III; or,

          4.   Fail to perform its obligations contained in Section XII.

     6.3  Should UCC default on this Agreement pursuant to Section VII or cancel
          this  Agreement  prior  to  its  expiration  or  TNP  terminates  this
          Agreement  pursuant to Section 6.2 above,  then UCC will reimburse TNP
          for all Interconnection Costs and Special Facilities Costs incurred to
          date that have not been  recovered  to date by TNP.  This will include
          any  enhancements or  modifications  made to the  Interconnection  and
          Special  Facilities.  If any of the  aforementioned  items occur,  the
          Power Sales Agreement is also nullified at that time.

     6.4  Should  UCC  cancel  the  Power  Sales  Agreement,  or UCC  no  longer
          purchases  power  from TNP  under  the  Power  Sales  Agreement,  this
          Agreement  is  nullified.  As  such,  UCC will  reimburse  TNP for all
          Interconnection  Costs and Special  Facilities  costs incurred to date
          that have not been  recovered  to date by TNP.  This will  include any
          enhancements  or  modifications  made  to the  Interconnection  and/or
          Special   Facilities.   6.5  TNP  will   remove  at  its  expense  all
          Interconnection Facilities and Special Facilities on UCC's land within
          one (1)  year of the  expiration  or  cancellation  of this  Agreement
          unless agreed otherwise.

VII. DEFAULT

     7.1  Should  either  party  materially  default in the  performance  of its
          obligations hereunder,  or should UCC default in payment to TNP of any
          applicable  tariff  schedules,  the  nondefaulting  party may  suspend
          performance under this Agreement upon thirty (30) days written notice;
          and if the default continues for more than ninety (90) days after such
          written notice by the  non-defaulting  party, then the  non-defaulting
          party may  terminate  this  Agreement.  No  termination  shall  occur,
          however,  if the defaulting  party, at the end of said ninety (90) day
          period  presents  evidence  to I  the  .1  non-defaulting  party  that
          satisfactory  measures  have been taken or are being taken to cure the
          default within the next one hundred and eighty (180) days.  Section VI
          above further addresses termination by either party.

VIII. REPRESENTATION. WARRANTIES AND AGREEMENTS

     8.1  The Facility shall be operated and maintained in accordance with TNP's
          Specification  of  Qualifying  Facility   Interconnection  and  Safety
          Requirements  attached  hereto as Appendix  C, and good and  generally
          accepted utility standards with respect to synchronizing,  voltage and
          reactive power control.

     8.2  UCC shall  operate the Facility at the power  factors  and/or  voltage
          levels reasonably  prescribed by TNP's system dispatcher or designated
          representative,  provided  such  factors  or  levels  are  within  the
          Facility's design limitations.  Without limiting the generality of the
          foregoing,  the Facility  shall generate such reactive power as may be
          necessary to maintain reactive area support.

     8.3  UCC shall during an Emergency  supply such  Capacity and Energy as the
          Facility  is able to generate  and TNP is able to receive.  If UCC has
          previously scheduled an outage coincident with an Emergency, UCC shall
          make all reasonable efforts to reschedule the outage.

     8.4  Each  party  shall  at  all  times  conform  to all  applicable  laws,
          ordinances,  rules and regulations  applicable to it. Each party shall
          give all required  notices,  shall  procure and maintain all necessary
          governmental  permits,  licenses  and  inspections  necessary  for its
          performance  of this  Agreement,  and shall pay all  charges  and fees
          in-connection therewith.

     8.5  UCC shall keep TNP's dispatcher informed,  in the manner prescribed in
          the  Operating  Agreement,  attached  hereto as  Appendix D, as to the
          daily  operating  schedule and generation  capability of its Facility,
          including, without limitation, Forced Outage.

     8.6  UCC  shall,  within  thirty  (30)  days  following  execution  of this
          Agreement,  submit a  maintenance,  schedule for the first year of the
          Facility's  Commercial  operations.   Thereafter,   UCC  shall  submit
          semi-annual maintenance schedules on July 1 and January 1. The January
          1 schedule  shall cover the period July 1 through  December 31 of that
          same  year,  the July 1  schedule  shall  cover the  period  January 1
          through  June 30 of the  following  year.  UCC shall  furnish TNP with
          reasonable advance notice of any change in the schedule. TNP's ability
          to recognize and accept such notice is  contingent  upon any necessary
          scheduled backup power arrangements.  TNP shall provide UCC reasonable
          advance  notice of  significant  plans with respect to its system that
          may affect interconnection with the Facility.

     8.7  For any  planned  outages,  UCC must submit  written  notice to TNP at
          least 50 days prior to the date UCC intends to begin the outage.

     8.8  UCC shall submit an annual  forecast of the electric  output which UCC
          expects  to sell to TNP  from the  Facility.  Such  forecast  shall be
          submitted  to TNP  within  one  (1)  month  after  execution  of  this
          Agreement and  thereafter  annually by April 1 during the term of this
          Agreement. Each annual forecast shall express the anticipated electric
          sales on a monthly  basis  for the first two (2 years of the  forecast
          and on an annual basis thereafter.

     8.9  UCC shall  maintain an accurate and  up-to-date  operating  log at the
          Facility with records of: real and reactive power  production for each
          clock hour, changes in operating status,  scheduled and Forced Outages
          and any unusual  conditions  found  during  inspections.  TNP shall be
          permitted  to inspect  such  operating  log upon request and copies of
          such log shall be provided,  if requested,  within thirty (30) days of
          TNP's request.

IX.  CONTROL AND OPERATION OF QUALIFYING FACILITY; DISPATCHING

     9.1  UCC shall control and operate the Facility;  except that TNP shall not
          be  obligated  to  purchase  or receive  and may require UCC to reduce
          Energy  deliveries in excess of UCC's internal usage, and from time to
          time, if: (i) an Emergency  condition or situation exists; or (ii) TNP
          reasonably  determines  that it is  necessary to  construct,  install,
          repair,  replace,  remove,  investigate  or  inspect  any  part of its
          electrical system relating to the Qualifying Facility. TNP will make a
          reasonable  effort to notify and coordinate  such reductions with UCC;
          except that with respect to (ii) above, TNP shall provide UCC at least
          forty-eight  (48)  hours  prior  notice if  practical.  Any  reduction
          required of UCC's Facility  hereunder shall be implemented in a manner
          consistent with safe operating procedures.

     9.2  In addition to the rights to reduce Energy  deliveries  granted to TNP
          in the  preceding  Section 9.1, TNP shall not be obligated to purchase
          or receive and may require UCC to reduce Energy deliveries at any time
          from time to time, if in TNP's judgment: i) reduction of deliveries is
          required  pursuant to Section  23.66 of the  Substantive  Rules of the
          PUCT;  or ii) a  reduction  is  necessary  because of minimum  loading
          conditions or other operational  conditions on TNP's system. TNP shall
          furnish  Qualifying  Facility  with  reasonable  notice of  reductions
          directed under this Section 9.2. Reasonable notice of any reduction is
          as follows:

          The reduction of generation  shall be based upon the  requirements  of
          TNP at the time of the  requested  reduction.  UCC  agrees  to  reduce
          output to a level  specified  by TNP at the time of notice in order to
          meet and not exceed TNP's requirements.

     9.3  UCC shall employ  operators or dispatchers for monitoring the Facility
          and for coordinating operations of the Facility with TNP's system. UCC
          shall ensure that operators or dispatchers (or an alternate contact if
          the Facility has been shut down) are on duty at all times, twenty-four
          (24) hours a day and seven (7) days a week.

     9.4  The  parties  recognize  that TNP is a member  of ERCOT and may in the
          future become a member of other  reliability  councils or power pools,
          and to ensure continuous and reliable  electric service,  TNP operates
          its system in accordance with the operating criteria and guidelines of
          ERCOT  or  other  reliability   councils  or  their  equivalent  where
          applicable.

     9.5  The load-break disconnect switch(es) provided by UCC may be secured by
          TNP and  operated by TNP without  prior  notice to UCC in the event of
          either of the following  circumstances provided that TNP uses its best
          efforts to notify UCC in advance:

          a)   An Emergency that requires immediate disconnection.

          b)   An immediate  hazard to life or property  caused by UCC. TNP will
               notify UCC of its intent to open the switch if:

          a)   The operation of UCC's  Facility is interfering  with  electrical
               service to other TNP customers or interfering with, the operation
               of TNP-owned equipment. UCC's Facility will be reconnected by TNP
               to TNP's electrical  system when UCC makes the necessary  changes
               so  that  the  Facility  will  no  longer  be  interfering   with
               electrical  service to other TNP  customers.  UCC will  cooperate
               with TNP in any  disconnection  procedure  that is  necessary  to
               investigate and determine the cause of problems on TNP's system.

          b)   It is necessary to assure the safety of TNP personnel.

          c)   Suspension of service is required under order of the PUCT.

     9.6  The notification required above shall be given to UCC's Facility plant
          manager or to any other  employee  designated  in writing by the plant
          manager. The Facility plant manager is hereby designated to be:

                               Colleen Robisheaux
                                  P.O. Box 471
                              3301 5th Avenue South
                          Texas City, Texas 77592-0471

     The name, title or address of the Facility plant manager designated in this
     Section  9.6 may be  changed  by  written  notification  from UCC to TNP in
     accordance with the provisions of Section XVIII.

     9.7  Without limiting the generality of the foregoing, TNP's dispatcher may
          require  UCC's  Facility  operator  or  dispatcher  to  raise or lower
          production  of Energy  generated by the Facility to maintain  safe and
          reliable  load  levels  and  voltages  on TNP's  transmission  system;
          provided,  however,  any  changes  in the  level  of  electric  output
          required  of  Facility  hereunder  shall  be  implemented  in a manner
          consistent  with safe  operating  procedures and within the Facility's
          design limitations.

     9.8  UCC shall  operate the Facility  with its speed  governors and voltage
          regulators  in  service  whenever  the  Facility  is  connected  to or
          operated in parallel with TNP's electric  system.  UCC shall not cause
          its Facility to automatically or instantaneously disconnect from TNP's
          system or trip any generating  unit comprising the Facility on account
          of abnormal frequency  conditions unless the frequency of TNP's system
          is below that stated in the Operating  Agreement  provided in Appendix
          D.

     9.9  UCC  shall  notify  TNP  prior  to  making  any  modifications  to the
          interconnection  between  UCC's  Facility  and TNP.  UCC must  receive
          approval from TNP, which approval shall not be unreasonably  withheld,
          prior to proceeding with such  modifications.  UCC shall permit TNP at
          any time to install or modify any  equipment,  facility  or  apparatus
          which is  reasonably  necessary to protect the safety of TNP employees
          or to assure the accuracy of TNP metering  equipment,  the  reasonable
          cost of which shall be paid for by TNP.

     9.10 UCC agrees to the terms and  conditions  detailed  in  Appendix C, the
          Specification  of  Qualifying  Facility   Interconnection  and  Safety
          Requirements.

X.   INTERCONNECTION AND SPECIAL FACILITIES

     10.  1  Following  execution  of  this  Agreement  and  receipt  by  TNP of
          necessary  rights-of-way and easements,  TNP shall design,  construct,
          and install the  Interconnection  Facilities and Special Facilities at
          TNP's  expense  with a target  completion  date of twelve  (12) months
          after the signing of this Agreement,  and no later than May 1, 1996 as
          long as this  Agreement  has  been  signed  by May 1,  1995.  TNP will
          operate,  and maintain all  Interconnection  Facilities  in accordance
          with TNP's  Specification of Qualifying  Facility  Interconnection and
          Safety Requirements included as Exhibit C attached hereto, and perform
          all work  necessary  to  economically,  reliably  and  safely  connect
          Qualifying  Facility to the Point of Delivery.  The One-Line  Diagram,
          provided as Appendix B attached  hereto,  details the  Interconnection
          facilities  and the Point of  Delivery.  An  estimate  of all costs to
          construct the  Interconnection  Facilities is included in the attached
          Appendix A. TNP shall own and maintain all Interconnection Facilities.

     10.2 UCC shall comply with all reasonable TNP  requirements  as to: (i) the
          design,  installation,  purchase,  operation  and  maintenance  of all
          equipment  necessary  to connect  UCC's  Qualifying  Facility to TNP's
          system  and  (ii)  the  protection  of  TNP's  system,  employees  and
          customers from damage or injury  arising out of or in connection  with
          operation of Qualifying Facility.

     10.3 TNP  shall  have  the  right  to  review  the  specifications  for the
          Facility,  including,  without  limitation,  improvements,  additions,
          modifications,  replacements or other changes to equipment, electrical
          drawings and one-line diagrams,  provided however that for the purpose
          of this Section 10.3 only,  the  definition of Facility  shall exclude
          equipment that consumes  process steam or thermal  energy  produced by
          the Facility  and/or  equipment  that produces fuel  resources for the
          facility. TNP's review of UCC's specifications,  drawings and one-line
          diagrams  shall not be construed as confirming or endorsing the design
          of such  Facilities,  or as a warranty  of the safety,  durability  or
          reliability thereof.

     10.4 TNP shall evaluate,  design,  install,  own,  operate and maintain all
          Special  Facilities  and perform all work  necessary to  economically,
          reliably and safely connect TNP's existing system to UCC's Facility at
          the  Point of  Delivery  in order to accept  and meter the  electrical
          output of the Qualifying Facility sold hereunder.

     10.5 UCC shall furnish,  install and maintain  clearly  labeled  load-break
          disconnect   switch(es)  approved  by  TNP  in  a  visible,   outside,
          readily-accessible   location  for  the  purpose  of   isolating   the
          Qualifying  Facility's generation from the TNP system. Such disconnect
          switch(es)  must be of a securable  type and capable of  disconnecting
          the  Qualifying  Facility's  generator  from TNP's  electrical  system
          without  interruption to other types of services provided to the QF by
          TNP.  UCC shall  provide a drawing as part of  Appendix B showing  the
          exact location of the disconnect switch(es). Ingress and egress to the
          disconnect  switch(es) shall be provided to TNP personnel at all times
          by UCC.

     10.6 TNP or its designated  representative  shall have the right to monitor
          the construction, start-up and testing of the equipment related to the
          generation,  control and  transmission  of Capacity  and Energy by the
          Qualifying  Facility at such times as may be reasonably agreed upon by
          the parties,  and UCC shall comply with all reasonable requests of TNP
          relating  thereto.  TNP's review and monitoring shall not be construed
          as confirming or endorsing the scheduling,  construction,  start-up or
          testing  of  UCC's  equipment,   or  as  a  warranty  of  its  safety,
          durability, or reliability.

     10.7 The parties  recognize  that from time to time  certain  improvements,
          additions or other changes in the  Interconnection  Facilities  and/or
          Special Facilities may be required by TNP for the economical, reliable
          and safe operation of the  Qualifying  Facility in parallel with TNP's
          system. Such changes shall be made at TNP's expense.

     10.8 The parties  recognize  that from time to time certain  modifications,
          additions,  replacements or other changes ("System  Modifications") in
          TNP's  transmission  and  distribution  system  may  be  necessary  to
          economically,  reliably and safely integrate UCC's Qualifying Facility
          and the qualifying facilities of other cogenerators into TNP's system.
          These  modifications,  additions,  and  replacements  shall be made at
          TNP's expense. if any System Modification is required to integrate the
          Qualifying  Facility,  TNP shall  design,  install,  own,  operate and
          maintain such System Modifications.

XI.  METERING

     11.1 UCC shall supply at its own expense, a suitable location acceptable to
          TNP for all meters and associated equipment.

     11.2 TNP shall maintain at its expense all necessary  meters and associated
          equipment  (including,  without  limitation,  generation  metering and
          telemetering  equipment)  utilized for measuring Energy deliveries and
          for determining TNP's payments to UCC.

     11.3 UCC shall  permit  TNP  employees  to enter upon its  premises  at any
          reasonable  time for the  purpose  of  inspecting  and/or  testing  or
          witnessing the testing of the accuracy of the metering equipment.  TNP
          agrees to abide by UCC's Health Safety and Environmental  requirements
          while on UCC's plant site.

     11.4 TNP's meters and associated current transformers installed pursuant to
          this Agreement shall be tested by TNP, at TNP's expense, at least once
          each year and at any reasonable time upon requests by either party, at
          TNP's  expense.  UCC shall be  afforded an  opportunity  to be present
          during all testing and shall be furnished  'all  testing  results on a
          timely basis if requested.

     11.5 If the meter test(s)  conducted under Section 11.4 above results in an
          inaccuracy in measurement of Energy in excess of one percent (1%), any
          affected  meter(s)  shall be  recalibrated  to within 1% accuracy  and
          payments hereunder shall be retroactively  adjusted for (i) the actual
          period during which inaccurate  measurements  were made, if the period
          can be determined,  or if not, (ii) the period  immediately  preceding
          the test of the meter equal to one-half  the time from the date of the
          last previous test of the meter, but not exceeding six (6) months.

     11.6 If, for any reason,  any  meter(s),  or metering  equipment  is out of
          service  or out of  repair,  so that the  amount of  Energy  delivered
          cannot be  ascertained  or computed  from the  readings  thereof,  the
          Energy  delivered  during the period of such outage shall be estimated
          and agreed upon by the parties  hereto upon the basis of the best data
          available.

XII. PAYMENT AND BILLING

     12.1 Energy  delivered and Capacity made  available  shall be calculated in
          accordance  with the  information  collected by metering as defined in
          Section XI.

     12.2 The monthly payment to UCC consists of two (2) components:  Energy and
          Capacity.  The  total  payment  to UCC  equals  the sum of the two (2)
          components. Payment = Energy Payment + Capacity Payment = EP + CP

     12.3 For each kilowatt  hour of Energy  delivered to TNP, TNP shall pay UCC
          an energy payment  actually  avoided.  The payment is described by the
          following formula: EP = KWH * ER where EP = monthly energy payment KWH
          = the kilowatt hours delivered to TNP for a month,  provided that such
          deliveries  do not  exceed  the  amounts  scheduled  by TNP or amounts
          required by TNP. ER = 99% of the energy cost that TNP actually avoided
          purchasing  from TNP's energy  supplier during the billing period as a
          result of energy  deliveries  made  hereunder.  This is  calculated in
          $/KWH to a precision  of six (6)  decimal  places  using  conventional
          rounding,

     12.4 TNP shall pay UCC a Capacity  Payment as  described  by the  following
          formula: CP = (CC * $5.75/KW) + (AC * ADR) where CP = Monthly Capacity
          Payment CC = Contract  Capacity  AC = Avoided  Capacity is the monthly
          capacity that TNP actually avoids  establishing on a wholesale  tariff
          from TNP's  supplier  serving  the Texas City area.  This kW amount is
          determined  by  taking  the  total  capacity  load  of the  Qualifying
          Facility  at the  time of TNP's  peak on the  wholesale  supplier  and
          subtracting out the Internal Usage Capacity at that time. ADR = (WCR *
          95%) where ADR = Avoided Demand Rate WCR = Wholesale  Capacity Rate is
          the rate expressed in $/kW (kVa) charged by the wholesale  supplier in
          the Texas city area.

     12.5 TNP shall read UCC's meter  monthly at such time as the Parties  shall
          agree TNP shall send a  statement  and make a payment on or before the
          20th day after the meter is read  subject  to the  condition  that UCC
          shall  make its  payment  to TNP for  electrical  service  during  the
          corresponding  period  on  the  same  day  as  TNP's  payment  to  UCC
          hereunder.  The billing statement will show the hourly  kilowatt-hours
          of Energy delivered at the Point of Delivery, the total kilowatt-hours
          delivered,  the duration of the billing  period (in clock hours),  the
          Contract  Capacity,  the monthly  capacity,  UCC's  Internal  Capacity
          Usage,  the total  amount due UCC and,  upon  request,  any other data
          reasonably  pertinent  to the  calculation  of the Energy  Payment and
          Capacity Payment.

     12.6 Any payments  required or authorized herein shall be deemed given when
          made in writing and delivered or mailed with sufficient postage to the
          following addresses of the parties:

           (a)      If to UCC:
                (i)      to - Union Carbide Corporation
                         Sammie Lehman
                         3301 5th Avenue South
                         P.O. Box 471
                         Texas City, Texas 77592-0471

           (b)     If to TNP:

                (i)      to - Texas-New Mexico Power Company
                         Manager - Customer Accounting
                         4100 International Plaza
                         Fort Worth, TX 76109

                               OR
                         P.O. Box 2943
                         Fort Worth, TX 76113

     12.7 Any  service  that  UCC  requests  from TNP  will be  provided  to UCC
          according to the applicable TNP tariff on file with the PUCT.

XIII. INSURANCE

     13.1 During the term of this Agreement, UCC shall procure, pay premiums for
          and  maintain  in full  force  and  effect  the  insurance  coverage's
          described below for its own benefit:

          1.   (a)  Worker's  Compensation  Insurance as required by the laws of
               the State of Texas,  and (b) Employer's  Liability with limits of
               not less than $100,000 each  accident,  both to include any other
               statutory or federal coverage if applicable; and

          2.   Comprehensive  General Liability  Insurance,,  including coverage
               for (a)  premises/operations,  (b)  independent  contractor,  (c)
               products  and  completed  operation,  (d) broad form  contractual
               liability,  (e) broad form  property  damage and, (f)  explosion,
               collapse and  underground  damage  exclusion  deletion,  all with
               limits of not less than $1,000,0000  each occurrence,  $1,000,000
               aggregate  for  bodily  injury  and with  limits of not less than
               $500,000 each occurrence, $500,000 aggregate for property damage;
               and

          3.   Excess umbrella Liability  Insurance with limits of not less than
               $10,000,000  each accident or occurrence and  $10,000,000  annual
               aggregate,  in excess of the  underlying  limits and terms as set
               forth in this Section 13.1.

     13.2 Each insurance policy provided by UCC shall include the following:

          1.   At least thirty (30) days' prior written  notice of  cancellation
               or material change will be provided to TNP hereto.

          2.   A waiver of subrogation in favor of TNP, its affiliated  entities
               and  their  officers,   directors,  agents,   subcontractors  and
               employees.

     13.3 UCC shall provide  certificates of insurance  evidencing the insurance
          coverage's  required  to be  maintained  prior  t@  execution  of this
          Agreement.

     13.4 Upon mutual agreement of the parties, not to be unreasonably withheld,
          UCC may provide  adequate self  insurance in lieu of the  requirements
          set forth in Section 13.1 through 13.3.

XIV. LIABILITY, NONCOMPLIANCE AND GUARANTEES

     14.1 Neither  party shall hold the other  party  (including  its  corporate
          affiliates,  parent, subsidiaries,  directors, officers, employees and
          agents) liable for any claims,  losses, costs and expenses of any kind
          or  character  (including,  without  limitation,  loss of earnings and
          attorneys' fees) on account of damage to property of TNP or UCC in any
          way occurring  incident to,  arising out of, or in  connection  with a
          party's performance under this Agreement.

     14.2 TNP and UCC  shall  each be  responsible  for the  safe  installation,
          repair and condition of their  respective  lines and  appurtenances on
          their respective sides of the Point of Delivery. TNP and UCC will each
          protect and indemnify the other  (including its corporate  affiliates,
          parent, subsidiaries,  directors, officers, employees and agents) from
          and against any liability or loss (including  reasonable  expenses and
          attorneys I fees)  because of bodily  injury or  property  damage to a
          third party arising out of TNP's or UCC's respective  responsibilities
          as stated herein;  except that neither shall be obligated to indemnify
          the other for injury or damage (a) caused solely by the  negligence of
          the  other  or,  (b)  caused  by an  employee  of  the  party  seeking
          indemnity,  tampering  with or  attempting  to repair or maintain  any
          facilities of the party from whom indemnity is sought,  or, (c) to the
          extent caused @y the concurrent negligence of the other party.

     14.3 An  undertaking by one party to the other party under any provision of
          this  Agreement  shall not  constitute  the dedication of such party's
          system or any portion  thereof to the public or to the other party and
          any such  undertaking  shall  cease upon  termination  of the  party's
          obligations herein.

     14.4 In performing under this Agreement,  each party relative to the other,
          shall operate as or have the status of an  independent  contractor and
          shall not act as or be an agent,  servant,  or  employee  of the other
          party.

     14.5 The parties shall  negotiate the terms and conditions  under which TNP
          will be provided the opportunity to acquire the Facility  installation
          before the  installation is offered to another  purchaser in the event
          of its abandonment.

     14.6 Under  no  circumstances  shall  either  party,  or  their  respective
          affiliates, directors, officers, employees and agents, or any of them,
          be  liable  to  the  other   party  for  any   indirect,   special  or
          consequential damages.

     14.7 Any waiver at any time by either party of its rights with respect to a
          default  under this  Agreement,  or with respect to any other  matters
          arising in connection with this Agreement,  shall not be deemed waiver
          with respect to any subsequent default or other matter.

     14.8 This Section XIV shall  survive  termination  of this  Agreement for a
          period of two (2) years after the effective date of  termination.  XV.
          TAXES

     15.1 All present or future federal,  state, municipal or other lawful taxes
          applicable by reason of the sale of Energy or Contract  Capacity shall
          be paid by UCC. XVI. CHOICE OF LAW

     16.1 This Agreement shall be  interpreted,  construed under and governed by
          the laws of the State of Texas or the laws of the  United  States,  as
          applicable.  The parties hereby submit to the  jurisdiction  of courts
          located in, and venue is hereby stipulated in Travis County, Texas.

XVII. MISCELLANEOUS PROVISIONS

     17.1 Neither  party shall  assign  this  Agreement  or any portion  thereof
          without the prior  written  consent of the other  party which  consent
          shall not be unreasonably  withheld,  provided,  however, such consent
          shall, not be required prior to an assignment to a parent,  subsidiary
          or  affiliated  corporation;  but  provided,  further  that:  (i)  any
          assignee shall expressly assume assignor's obligations hereunder; (ii)
          no such  assignment  shall impair any security given by UCC hereunder;
          and (iii) unless  expressly  agreed by the other party in writing,  no
          assignment, whether or not consented to, shall relieve the assignor of
          its obligations hereunder in the event its assignee fails to perform.

     17.2 The  failure  of either  party to insist in any one or more  instances
          upon strict  performance of any provisions of this Agreement,  or take
          advantage of any of its rights hereunder,  shall not be construed as a
          waiver of any such provisions or the  relinquishment of any such right
          or any other right  hereunder,  which  shall  remain in full force and
          effect.

     17.3 The  headings   contained  in  this  Agreement  are  used  solely  for
          convenience and do not constitute a part of the agreement  between the
          parties  hereto,  nor should  they be used to aid in any manner in the
          construction of this Agreement.

     17.4 Neither  party  is to  make an  announcement  or  release  information
          concerning this agreement unless; (i) such announcement or release has
          been  submitted to and approved in writing by the other party or; (ii)
          such  information  is released  in order to comply with any  statutes,
          laws, regulations, or orders issued by any authority legally empowered
          to compel compliance or having  jurisdiction over either party to this
          Agreement.

     17.5 Each party shall  designate,  by written  notice to the other party, a
          representative  who  is  authorized  to  act  in  its  behalf  in  the
          implementation  and administration of this Agreement provided that the
          Authorized Representative shall have no authority to modify any of the
          provisions of this Agreement.  Either party may at any time change the
          designation of its Authorized  Representative by written notice to the
          other party.

     17.6 This  Agreement  and any  amendments  agreed  to by  both  TNP and UCC
          hereto, shall at all times be subject to such changes or modifications
          as shall be ordered from time to time by any  regulatory  authority or
          court having  jurisdiction  to require  such  changes or  modification
          including,  without limitation, all successor tariffs and schedules to
          the tariffs and schedules which apply to this Agreement at the time of
          its execution.

     17.7 This  Agreement  sets forth the  entire  understanding  and  agreement
          between the  parties  hereto and  supersedes  and  replaces  any prior
          understandings,  warranties, representations,  agreement or statements
          (written or oral) of intent relating to the subject of this Agreement.
          Any  modification or other alteration of this Agreement by the parties
          shall be effective only if set forth in writing as an amendment hereto
          and signed by both parties.

XVIII. NOTICES

     18.1 Except as  otherwise  provided  herein,  notices,  demands or requests
          required  or  authorized  herein  shall be deemed  given  when made in
          writing  and  delivered  or  mailed  with  sufficient  postage  to the
          following addresses of the parties:

          (a)     If to UCC:
                  (i) to      Union Carbide corporation
                              Attn: Colleen Robisheaux
                              P.O. Box 471
                              3301 5th Avenue South
                              Texas City, Texas 77592-0471

          (b)     If to TNP:

                  (i) to      Texas-New Mexico Power Company
                              Attn: Assistant Vice President
                              Resource Acquisition
                              4100 International Plaza
                              Fort Worth, TX 76109
                                       OR
                                 (P. 0. Box 2943
                              Fort Worth, TX 76113)

     18.2 The names,  titles,  and addresses of either party  designated in this
          Section  XVIII may be  changed by  written  notification  to the other
          party. Notices during a system emergency or operational  circumstances
          may be made in person or by telephone in accordance with Appendix D.

XIX. STANDBY POWER:

     19.1 For the purposes of this Agreement,  Standby Power shall mean capacity
          and  energy  as  applicable,  not to  exceed  the  level  of  Contract
          Capacity,  necessary  for TNP's system  which cannot be supplied  from
          UCC's  resources  due to  outages  of UCC's  generation  or failure of
          Qualifying  Facility to deliver Capacity and Energy as provided for in
          this Agreement.

     19.2 In order to qualify for Scheduled  Maintenance  Service, UCC will meet
          the following conditions:

          .1   UCC will submit  written  notice to TNP at least 50 days prior to
               the date UCC intends to do Scheduled Maintenance Service.

          .2   UCC shall be limited to a maximum of six (6) periods of scheduled
               maintenance which may not, in the aggregate, include more than 60
               days in a  calendar  year  and  must  be  scheduled,  with  TNP's
               approval,  far the months of  January,  February,  March,  April,
               November,  and/or December or at such other times and/or for such
               other periods as may be mutually acceptable.

     19.4 During  periods of Forced Outage or failure of UCC's power  production
          equipment,  TNP will  obtain  Standby  Power for a maximum  of two (2)
          consecutive  months.  Should the outage period exceed two (2)/'months,
          UCC  must  provide  in  writing  to  TNP's  satisfaction,  a  detailed
          description of the events causing the Forced outage, at which time TNP
          will determine what further arrangements may be necessary.

     19.5 During periods of Forced Outage of UCC's Facility,  UCC will be billed
          for Internal Usage in the amount,  if any, that TNP's energy cost (per
          Section 12.3 of this Agreement) is greater than the energy charge that
          TNP incurs to replace it. TNP will credit its monthly  purchase  power
          bill from UCC to reflect this charge.

     19.6 It is  understood  by the  parties  hereto  that TNP may be  unable to
          obtain Standby Power for the full term of this  contract.  The parties
          also  recognize  that TNP's  ability to secure  Standby  Power for the
          Qualifying  Facility is solely  dependent upon the  availability  from
          other  suppliers.  TNP agrees PAGE 4 1 that it will deliver  notice to
          UCC when its standby  supplier  has given TNP notice of  intention  to
          cancel  standby  service  with TNP.  Such notice to UCC shall be given
          within two weeks of the time notice  from the  supplier is received by
          TNP. The notice to UCC shall be written,  and  contain,  at a minimum,
          information  sufficient  to  inform  UCC of the date  upon  which  the
          standby service to TNP will cease.

     19.7 UCC must submit to TNP records showing,  to TNP's  satisfaction,  what
          part of UCC's metered Ova in any month was due to Standby  Power,  for
          either Maintenance and/or Back-up service.  These records must include
          an hourly  profile of the Standby  Ova. UCC must notify TNP in writing
          within  forty-eight (48) hours of each start of and end of a period of
          using standby power, whether for maintenance or back-up service.

     19.8 Qualifying  Facility taking Standby Power on a stand-alone  basis need
          not submit hourly profiles.

     19.9 Qualifying  Facility  taking Standby Power in  conjunction  with other
          service,  where KWH usage for Standby Power cannot be determined  from
          metered  information,  the KWH usage will be based on the  schedule of
          Standby  Ova which will be assumed  to be taken at the  average  power
          factor of the total load at that time.

     19.10Standby Power provided by TNP to UCC under this  contract,  is subject
          to the term of this agreement.

XX.  FORCE MAJEURE

     20.1 The term  force  majeure,  as used  herein,  means  causes  beyond the
          reasonable  control  of, and without  the fault or  negligence  of the
          party claiming force majeure,  including,  without limitation, acts of
          God,  sudden  actions of the elements,  such as floods,  hurricanes or
          tornadoes,  and  action  by  federal,  state,  municipal  or any other
          government or agency, sabotage, war or riots.

          1.   The term  force  majeure  does not  include  any full or  partial
               curtailment  in the  electric  output  of the  Facility  which is
               caused  by or  arises  from  the act or acts of any  third  party
               including,  without  limitation,  any vendor or  supplier of UCC,
               unless  such act or acts is  itself  excused  by  reason of force
               majeure.

          2.   The term  force  majeure  does not  include  any full or  partial
               curtailment in the electric output of the Facility that is caused
               by or arises from a  mechanical  or equipment  breakdown,  unless
               such  breakdown is caused by acts of God,  sudden  actions of the
               elements such as floods,  hurricanes or tornadoes,  sabotage, war
               or riots.  3. The term force majeure does not include  changes in
               market conditions that affect the cost of UCC's supply of fuel or
               alternate  supplies  of fuel  or that  affect  demand  for  UCC's
               products.

     20.2 If either party because of force majeure is rendered  wholly or partly
          unable  to  perform  any  of  its  obligations  under  this  Agreement
          (including,  without limitation,  as to the Qualifying  Facility,  the
          obligations  of the  Qualifying  Facility  set  forth in  Section  6.2
          hereof),  that party shall be excused  from  whatever  performance  is
          affected by the force majeure to the extent so affected provided that:

          .1   The  non-performing   party,  within  two  (2)  weeks  after  the
               occurrence  of the force  majeure,  gives the other party written
               notice describing the particulars of the occurrence.

          .2   The  suspension of  performance  is of no greater scope and of no
               longer duration than is required by the force majeure.

          .3   The  non-performing  party  uses its best  reasonable  efforts to
               remedy its inability to perform.

          .4   When the  non-performing  party is able to resume  performance of
               its obligations  under this Agreement,  that party shall give the
               other party written notice to that effect.

     20.3 Force majeure conditions shall be reflected in the Capacity Payment in
          accordance with Section XII hereof.

     20.4 Except as otherwise provided,  a Forced Outage does not relieve either
          party of any of its obligations under this Agreement. XXI. ENTIRETY

     21.1 This  Agreement is intended by the parties as the final  expression of
          their  agreement  and is  intended  also as a complete  and  exclusive
          statement of the terms of their  agreement  with respect to the Energy
          and Capacity sold and purchased  and the  construction,  operation and
          maintenance  of the  Interconnection  Facilities  that are required to
          provide a means for the transfer of power and energy  generated by the
          Qualifying  Facility to TNP's electrical  system. All prior written or
          oral  understandings,  offers or other  communications  of every  kind
          pertaining to the sale of Energy and Capacity  hereunder to TNP by UCC
          are hereby  abrogated  and  withdrawn.  TS 22.1 This  Agreement may be
          amended only in writing and upon mutual agreement of the parties.  Any
          amendment  hereafter made by mutual agreement of the parties shall not
          be effective unless and until approved by the PUCT.

XXIII. COUNTERPARTS

     23.1 This  Agreement may be executed in one or more  counterparts,  each of
          which  shall  be  deemed  to be an  original  but all of  which  shall
          together constitute one and the same Agreement.

XXIV. REMEDIES CUMULATIVE AND CONCURRENT

     24.1 The duties, covenants,  conditions,  obligations and warranties of the
          Parties  as  provided  in this  Agreement  are the joint  and  several
          obligations of the Parties and the  successors and  transferees of the
          Parties.

     24.2 No right or remedy of either  Party as provided in this  Agreement  or
          the schedules,  rules and regulations of TNP is exclusive; every right
          or  remedy  of  either  Party as  provided  in this  Agreement  or the
          schedules,  rules  and  regulations  of TNP  will  be  cumulative  and
          concurrent,  with every  other  right or remedy,  now or  subsequently
          existing,  as provided in this  Agreement or the  schedules,  rules or
          regulations  of TNP,  at law,  in equity or by statute or  regulation.
          Every  right or  remedy of either  party  may be  pursued  separately,
          successively  or  together   against  either  Party,  or  against  the
          successors  or assigns of either Party or any one or more of them,  in
          the sole and absolute discretion of either Party, and may be exercised
          as often as occasion  for the pursuit  arises and from time to time as
          either Party may deem expedient,  in the sole and absolute  discretion
          of either Party. XXV. SIGNATURE CLAUSE

     25.1 The  signatories  hereto  represent that they have been  appropriately
          authorized  to enter  into this  Agreement  on behalf of the party for
          whom they sign.

     IN WITNESS  WHEREOF,  the parties have caused this Agreement to be executed
this the 30th day of December, 1994, in multiple counterparts.

Attest:                                _______________________________



______________________________      By:_______________________________
Secretary

                                 Title:_______________________________

                                 Date:________________________________


Attest:                                TEXAS-NEW MEXICO POWER COMPANY



______________________________     By:_________________________________
Assistant Secretary                      Assistant Vice President -
                                  Title:   Resource Acquisition & Management


                                 Date:________________________________